Thursday, 30 April 2015

Capitalist or consumer sovereignty

As it is in the nature of humans to protect acquired advantages by all possible means, we cannot expect leading capitalists to always uphold free competition and other fundamental principles of capitalism.

On the contrary, consumers do not face a similar conflict of interest. If they already have a good product or service they still look out to replace it with another even better. This has led some to view capitalism primarily as a system of consumer sovereignty, usually defined as “the power of consumers to determine what goods and services are produced”.

For instance, Mises argued that capitalists and entrepreneurs “are at the helm and steer the ship. But they are not free to shape its course. They are not supreme, they are steersmen only, bound to obey unconditionally the captain's orders. The captain is the consumer. (Bureaucracy, "Profit Management," p. 226 )

On the contrary, the opponents of capitalism see it as a threat to consumer sovereignty by claiming that for-profit firms will manipulate dispersed and unorganized consumers in order to maximize their profits. These critics substitute or supplement the old Marxist class struggle between labor and capital with a new divide between corporations and consumers.

The relative power of consumers and businesses is an empirical matter, but there is no doubt that one is limited by the other and vice versa. Nevertheless, as we move towards a system of market capitalism we know that we are getting closer to the libertarian ideal of consumer sovereignty. On the contrary, if we move towards managerial or state capitalism consumer sovereignty becomes more and more remote.

Two other important issues concern the role of capitalism in innovation and health safety in relation to new products and processes. In some areas, like fundamental research, it is obvious that consumers' demand cannot be at the helm. Here, the other two sectors – voluntary and state – are better placed to establish mundane or far-fetched objectives, even when they are contracted to the private sector (e.g. space science).

Regardless of whether such programs are promoted by special interest groups (namely the suppliers and producers of such items) or by public interest, there is a need for some sort of arrangement between consumers and capitalists.

So, overall, capitalism is better described as a system of shared consumer sovereignty. A system where the long term self-interests of capitalists work as an incentive to invest in businesses with strong consumer awareness.

The relative preference of consumers for material and spiritual wants can be influenced by the business, voluntary or the state sector, but in no circumstances should any of the three sectors have the power to unduly coerce individual consumer decisions. That is why the freedom of contract and the rule of law are two important principles to protect the capitalist system as a system of shared consumer sovereignty.

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